Delphi Bankruptcy Exit in Jeopardy

A plan by auto parts supplier Delphi Corp. to exit bankruptcy by the end of next month is in jeopardy as it struggles to get $6.1 billion in loans in the tight credit market. If the company does not secure the exit financing it needs by the end of March, equity investors led by hedge fund Appaloosa Management LP could abandon a deal to invest as much as $2.55 billion. The deal is crucial to Delphi's ability to emerge from Chapter 11 protection.

From AFX News Limited

NEW YORK — A plan by auto parts supplier Delphi Corp. to exit bankruptcy by the end of next month is in jeopardy as it struggles to get $6.1 billion in loans in the tight credit market.

If the company does not secure the exit financing it needs by the end of March, equity investors led by hedge fund Appaloosa Management LP could abandon a deal to invest as much as $2.55 billion. The deal is crucial to Delphi’s ability to emerge from Chapter 11 protection.

Delphi spokesman Lindsey Williams declined to say how much of the needed loans are secured. "Some of it has been completed," he said. "The entire package is not complete."

"The process has been challenging because of the volatility in the credit markets, but it’s important to move forward," Williams said. "This is one of the last major hurdles we need to get through."

General Motors Corp. Chief Financial Officer Fritz Henderson said Tuesday that credit market conditions have prevented Delphi from getting the loans it needs. GM was the parent company of Troy, MI-based Delphi until it was spun off in 1999, and it is still one of Delphi’s biggest customers.

Further complicating the situation is that Appaloosa’s deal requires that any loans would not cost more than $585 million in interest in 2008. If Delphi can’t get loans that meet that condition, GM may need to step in, and that could disrupt the balance of interests reached between the Appaloosa-led investors, GM and the equity and creditor committees.

"At this point, GM is exploring alternatives with Delphi in the event that the planned financing level can’t be achieved," Henderson said.

GM is so reliant on parts from Delphi that it has to take steps to ensure that the supplier emerges from bankruptcy protection or stays in operation, said Calyon Securities analyst Mark Warnsman.

Henderson declined on Tuesday to discuss the company’s options for keeping Delphi afloat. Warnsman, though, said GM could offer to guarantee some of Delphi’s debt or inject some cash to help it raise the financing it needs.

"At the end of the day, GM’s prime motivation is continuing to see parts from Delphi flowing into its assembly plants," Warnsman said.

Delphi, GM’s largest parts supplier, makes radios, navigation systems and other electronics for many GM models, as well as suspension components, brakes, safety systems and other items.

GM has said it ended last year with $27.3 billion in cash and readily available assets, but probably would rather not spend any of that on Delphi, Warnsman said.

"I would suspect that GM would prefer to use that cushion to reassure its own shareholders and debtholders," he said.

Delphi may be forced to seek an extension from the court to retain exclusive control over its exit plan if it isn’t able to leave court protection by the end of March. A bankruptcy judge approved its exit plan in January.

Appaloosa is joined by five other equity investors: Harbinger Capital Partners Master Fund I Ltd.; Merrill Lynch, Pierce, Fenner & Smith Inc.; UBS Securities LLC; Pardus Capital Management LP; and Goldman Sachs Group Inc.